If you’ve recently encountered an iPad full of tipping inquiries at checkout, you’re not alone. Digital tipping at coffee shops, restaurants, retailers, and other establishments is more common than ever — and the IRS is aware of it, too.
The Treasury Department and Internal Revenue Service (IRS) issued new guidance for reporting tips on annual tax documents, according to Forbes. The changes, published in early February, outline new ways for employers to report and withhold total tips left to employees in consumer-facing jobs.
It’s part of a Service Industry Tip Compliance Agreement (SITCA) program, proposed on Feb. 6 by the IRS. It’s currently tentative, based on taxpayer and employer feedback.
It overwhelmingly shifts the burden of tracking tips from individual employees to employers, using digital POS devices to monitor compliance and estimate withheld taxes on tipping. The IRS can also monitor employers’ total tip reporting based on data from digital point-of-sale (POS) systems. This includes digital self-checkout screens, iPads, tablets, smartphones, and other digital payment devices.
Tips are currently taxed as income and payroll, contributing to Social Security and Medicare funds. However, the IRS has long struggled with accurate tip reporting — as cash tips are common, there are few means to track or enforce unreported gratuity.
“The proposed SITCA program is designed to take advantage of advancements in point-of-sale, time and attendance systems, and electronic payment settlement methods to improve tip reporting compliance,” the guidelines state. “The proposed program would also decrease taxpayer and IRS administrative burdens and provide more transparency and certainty to taxpayers.”
Additionally, the proposal would allow businesses the liberty to decide on the best way for employees to report their own tips. The SITCA will now be the only program to address compliance in reporting service industry tipping, replacing the Tip Rate Determination Agreement (TRDA), Tip Reporting Alternative Commitment (TRAC), and Employer designed TRAC (EmTRAC).
The IRS is open to receiving comments and feedback on the proposed guidelines (online and by mail) through May 7, per the full IRS notice.
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